Whether you agree with the policy or not, one way that Biden is redrawing the map of economic influence globally is in Ukraine. And oil and gas are playing an enormous part in it.
Biden’s and Europe’s reaction to the Russian invasion in Ukraine has drawn indelible lines in a way that Russian aggression hasn’t in Chechnya, Syria or the Crimea. It is quickly creating new and far more starkly demarcated economic ‘spheres’ surrounding those countries and their governments who would support authoritarianism in our modern times, and those that cling to the Western democratic ideals set after WWII and would hope to resist it. On one side stand Russia (and their satellites), with China and (to a lesser degree) India – their ‘morality’ is based upon nationalist puffery and their supposed ‘place in history; Russia is ‘entitled’ to Ukraine (and more) as a reconstituted part of their democratically despoiled empire, China is entitled to Taiwan (and more) for their long cultural history of dominance in the region. Their preeminence has been derailed by the last 80 years of Western Liberal democratic thought since the end of WWII, and they mean to break through now to get what they believe they’ve always deserved as world powers.
Biden’s major brilliancy (in my mind), has been to pitch the battle not in military terms, as has been often suggested, but in economic ones. He has led a Western collective effort to systematically isolate Russia with sanctions and corporate withdrawal from Russia – and one of the first (and by far most important) components of that isolation is to move as quickly as they can to contain and defer oil and gas imports – the singular most important component of the Russian economy and Russian military machine.
This is hardly an easy task. Europe is heavily reliant on Russian oil and gas, importing about 25% of its daily demand in oil and nearly 40% of its daily demand for natural gas.
Despite the incredible difficulty of trying to supplant such a large amount of fossil fuels in a marketplace already stressed by global supply shortages, the Europeans have been moving smartly to begin the process of trying to fully eliminate Russian oil and gas from their import list – and they’ve been doing it with United States’ help. Biden brought to Europe several outlines to supplant Russian oil and gas supplies including an immediate ban. While the US was able to enforce its own ban on Russian oil, this was impossible for Europe. Still, there have been several long-range discussions between the German and Italian governments with US suppliers both of liquid natural gas and coal. I am convinced that this process will not be abandoned in Europe – they recognize the face of Fascism and what it can do to Europe unopposed.
Of course, the question for the long-haul to us as energy investors is whether the United States will remain strong as well in it’s economic isolation of Russia – and whether the sanctions and support of European energy independence will remain equally strong for the several years it will take to economically cripple Russia as it’s designed to. This is a long game that Biden is playing, and the next administration might be far less vigilant about the pressures that need to be kept up to destroy the Russian economy and Putin’s war machine.
Putin seems to think that sanctions are bound to fail – he is banking on it, in fact – and he could ultimately be right. Russia’s economy won’t even feel the full effects of massive sanctions until perhaps July – and the effects of those sanctions are designed to create internal unrest, which will take even longer to be felt in totalitarian Russia.
But if we are following the long-term and long-haul trends in energy – which I always try to do – the next two years (we hope) will be focused on this massive repositioning of energy supplies that will come from the economic pressures being put on Russia.
Oil and gas have always been apolitical, at least during my long career. Oil has always flowed from the places of cheapest supply towards those with the most money to pay for it, no matter the governments in place on either end of the chain or what conflicts or religious wars they were involved in. This is changing, at least for now, and while stunning and new, has created I think some of the greatest investment opportunities in energy that I’ve ever seen in my life.
dan@dandicker.com
